TMI Blog1999 (12) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the death of P.J. Vora, there were only two directors from the shareholders group--the first petitioner and the second respondent. In addition, there were two nominees of the BIFR on the board. In recognition of the services rendered by P.J. Vora to the company, in a board meeting held on October 29, 1994, it was resolved that the residential premises at 141, Somerset House, Bhulabhai Desai Road, Bombay, would always belong to the family of P.J. Vora and that the company did not have any claim over that property and that the legal heirs of P.J. Vora were at liberty to get the house transferred/transmitted in their name from the landlord. In the meanwhile, certain disputes arose between the parties and in January, 1996, they agreed to resolve the disputes by which the shares held by the petitioners' group would be purchased by the respondents for a sum of ₹ 3 crores and that the petitioners would get Flat No. 141, Somerset House, This settlement, however, did not materialise. 2. In this background, the petitioners have made various allegations that with a view to reduce the shareholdings of the petitioners to a minority, 65,000 shares were allotted to the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such this petition should be dismissed as not maintainable. 5. Shri Sarkar, senior advocate, initiating his arguments on behalf of the petitioners, taking up the preliminary objection by Haksar, submitted that it is wrong to contend that the petitioners do not satisfy the provisions of Section 399 of the Act. Referring to annexure R-47, he submitted that the first petitioner is the first named shareholder in respect of 580 shares, the second petitioner is shown as the first named shareholder in respect of 1,240 shares, the third petitioner as the first shareholder in respect of 1,280 shares, the fourth petitioner as the first shareholder in respect of 1,225 shares. Thus, all the petitioners are first named shareholders in at least four joint holdings. The total number of shareholders in the company is only seven and as such the petitioners satisfy the requirement of one-tenth of membership of the company. Further, all the shares held by P.J. Vora were jointly held with one or more of the petitioners who are the legal heirs of the deceased. Since the petitioners are the legal heirs of the deceased, notwithstanding the fact that the shares have not been transmitted to them, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a view to reduce the percentage holding of the petitioners from 49.98 per cent. to 13.88 per cent. Further, without ascertaining the fair value of the shares, just to benefit themselves, the respondents issued the shares at par. According to Sarkar, such a mala fide issue of further shares resulting in reduction of equal partner to an insignificant partner, is a grave act of oppression. Even otherwise, he submitted that the issue of further shares is not legally tenable also. His arguments on this are as follows : The original authorised capital was ₹ 25 lakhs. In a board meeting held on October 29, 1994, which was not attended by the first petitioner, the board decided to get the approval of the general body to increase the authorised capital of the company to ₹ 1.5 crore. However, without giving any notice to the petitioners, in an extraordinary general meeting held on November 23, 1994, the general body attended by just two shareholders, passed a resolution to increase the authorised capital to ₹ 1.5 crores consisting of 90,000 equity shares of ₹ 100 each and 60,000 6 per cent. redeemable preference shares of ₹ 100 each. Since the board never disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no such directive in that order. Further, he submitted that when a scheme under Section 17(2) of the Sick Industrial Companies (Special Provisions) Act was submitted to the BIFR, it was specifically mentioned that no increase in the capital was contemplated. Therefore, the entire allotment was only with a view to reduce the petitioners to a negligible minority from equal shareholding. 8. He also submitted that not having been satisfied with reducing the shareholding of the petitioners into minority, the second respondent has also taken over the complete management of the company by inducting his second wife (respondent No. 4) and his son (respondent No. 3) as director's on the board in an alleged meeting held on February 29, 1996. It is in spite of the fact that in a meeting held on February 22, 1996, the Bank of India nominee objected to the appointment of additional directors in the absence of the first petitioner who was at that time in the USA and was to return on March 1, 1996. The appointment of additional directors was purportedly made on the basis of some legal opinion and hastily made on February 29, 1996, even though the second respondent was fully aware tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of benefit by the respondents' group is a grave act of oppression against the petitioners in a family company. 11. He further pointed out that the petitioners are subjected to various kinds of acts of discrimination and thus are not in a position to exercise the rights of the shareholders. The powers of attorney given by these shareholders are not being registered by the company, their proxies are not registered, notices are not being sent by registered post in spite of specific instructions, etc. 12. Summing up his arguments, he submitted that the only way by which the matters complained of could be put an end to is that the shares held by the petitioners should be directed to be purchased by the respondents on a fair valuation to be made by an independent valuer. Since the petition was filed on December 3, 1996, the date of valuation should be that date as held in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66 ; [1959] 29 Comp Cas 1 (HL) and Yashovardhan Saboo v. Groz-Beckert Saboo Ltd. [1993] 1 Comp LJ 20 CLB ; [1995] 83 Comp Cas 371. As far as the method of valuation is concerned, he submitted that since the proceedings under Section 39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He also pointed out that right from the beginning, the petitioners were only seeking for implementation of the 1996 family agreement ignoring the allegations made in the petition. Thus, it is the family dispute that has prompted the petitioners to file this petition and not on any shareholders grievances of oppression. He further pointed out that at the relevant time the board consisted of four directors--the first petitioner, the second respondent and two nominees of the BIFR. All the decisions were taken by the majority and as such a lone director being in minority cannot allege oppression. 14. Dealing with the merits of the case, he submitted that the authorised capital was increased only on the suggestion of the operating agency in July, 1990, that the promoters should contribute ₹ 50 lakhs (page 204 of the reply). The proposal to increase the capital was approved in a board meeting held on October 29, 1994, and this meeting was attended by the first petitioner and she was assisted by the second and fourth petitioners. In this meeting, the matter relating to the flat at Somerset House was also taken. While the petitioner relies on the decision of the board regarding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the board. Therefore, the shares were allotted for the benefit of the company with a view to make its net worth positive and as such cannot be considered to be an act of oppression just because the petitioners' group was not allotted any further shares. By the time the respondents had pumped in substantial funds to the tune of ₹ 71 lakhs and accordingly out of this amount ₹ 65 lakhs were converted into share capital. 16. In regard to the appointment of the third and fourth respondents as additional directors, he submitted that they were appointed as additional directors in a board meeting held on February 29, 1996. He pointed out that during the period 1978 to 1981, the petitioners' group had three directors while the respondents' group had only two directors. Likewise, between 1981 to 1987, out of six directors, the petitioners had four and the respondents two. From 1987 to 1989, there were two directors each from both the groups. Later, after the death of P.J. Vora, each group had one director on the board. Thus, he pointed out that for a number of years, it was the petitioners' group which had majority on the board and both the groups were not eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there was no agreement for active participation by both the groups. He submitted that the petitioners having not acted in the spirit of partnership while the company was in difficulty, cannot ask for the same principles to be applied now. He further submitted that in view of the management of the company by the respondents' group, the net worth of the company has become positive enabling the company to come out of the purview of the BIFR. In view of this, it cannot be said that the affairs of the company are being carried on in a manner prejudicial to the interest of the company, shareholders or public interest warranting winding up of the company on just and equitable grounds. Therefore, he prayed that the petition be dismissed. 19. We have considered the pleadings and arguments of counsel. In regard to the arguments on the maintainability of the petition in terms of Section 399, we do not propose to examine the same in detail. All the petitioners hold a certain number of shares in their personal names as indicated at annexure R-47. The total number of members in the company is below ten. Section 399 provides that 1/10th of the total number of members would have the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her stated in paragraph 8 of that letter that an understanding has been arrived at between the two groups of the family and an arrangement for family settlement is being prepared and considered by the respective solicitors . This letter was written for the purpose of repaying ₹ 9 lakhs kept as deposit in the company by the petitioners' group, to meet the expenses for the marriage of one of the daughters of the late P.J. Vora. In the same letter, there is a mention about a Fiat car and the flat in Somerset House being transferred irrevocably to the petitioners' group. Thus, it is crystal clear that in spite of the corporate status, the company was being managed as a family company and managed in the garb of a quasi-partnership. 21. Under these circumstances, we have no hesitation to come to the conclusion that the company is a family company, managed at least till 1994 in the garb of a quasi-partnership. Most of the arguments advanced by Haksar to substantiate his stand that the company cannot be considered to be a quasi-partnership are based on events subsequent to 1994/1995 by which time there had been some discussion of parting of ways between the two groups. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a family company--wherein there had been equal shareholding between the two groups right from 1980, any change in the shareholding parity without mutual agreement, is definitely an act of oppression. It is on record that the shares were allotted in a meeting which was not attended by the first petitioner--the only other shareholder director--besides the second respondent. We are of the firm view that written offer should have been to the petitioners or the decision to allot shares should have been taken in a meeting attended by the first petitioner. It is immaterial as to under what circumstances these additional shares were issued--whether to revive the company, whether as per the directions of the BIFR and whether with the consent of the BIFR nominees. We would also point out, even assuming that the petitioners would not have taken the additional shares, in view of their willingness to go out of the company, yet, from the records placed before us it is crystal clear that no formal offer to all the petitioner shareholders had been made. We have, in a number of cases, decided that issue of shares in a family company run in the guise of a quasi-partnership, to one group of sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .J. Vora, the petitioners evinced their interest to dissociate themselves with the company and negotiated for separation. Even though, there is a dispute as to whether the family settlement as indicated to the bank at annexure U was finalised or not the proceedings before us indicate without any shadow of doubt that the respondents were not averse to settle the disputes amicably either by implementing the 1996 settlement or otherwise. In this connection, we may beneficially refer to certain orders passed by us in this regard. As early as on February 19, 1997, the respondents were willing to abide by the family settlement and accordingly we passed an order on that day as follows : the respondents will give a schedule of payment pursuant to the family settlement on May 5, 1997, at 4.00 pm for our consideration . In the hearing held on March 10, 1999, again, the respondents .expressed their desire to implement the family settlement but had certain reservations on the issue relating to the flat in Somerset House. In view of this, we passed an order on that day as follows : to arrive at an amicable settlement, as a first step, the value of the property occupied by petitioner No. 1 wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uo in relation to the number of members and directors would be restored as it stood before the disputes started between the two brothers. In view of the strained relationship between the two shareholders who are also directors, there is every likelihood of a deadlock in the management which is not in the interest of the company. The remedy under Section 397 is alternative to winding up, which means that the interest of the company is paramount in moulding the relief. Normally, in a family company like this, where both the shareholders are also directors, once mutual trust and confidence between them is lost, one of them going out of the company is the only way, which could protect the interest of the company . (Vinod Kumar v. Sigmalon Equipment (P.) Ltd.,....). After observing so, in view of the insistence of the petitioner that he should continue with the company, he was given the option of being with the company or to go out of the company after selling his shares on a proper consideration to be determined by an independent valuer. Since one of the complaints of the petitioner was that his brother's group was getting more remuneration in view of induction of directors from hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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